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Having a sufficiently large pension pot is critical to living a comfortable retirement. But how much money do individuals actually need?
The answer to this question depends largely on personal circumstances and living standards. But according to Pensions UK, a comfortable retirement in Britain requires an annual pension income of £43,900 a year for an individual, or £60,600 for couples.
Needless to say, that’s considerably more than what the roughly £12,000 the UK State Pension currently offers. As such, it’s crucial to build some personal retirement wealth. And that’s a task best suited to long-term investing.
Even when starting from scratch at the age of 40, there’s still plenty of time to build a chunky pension pot and establish the required retirement income. Here’s how.
Setting targets
Assuming the State Pension remains the same, a pension portfolio needs to generate a minimum annual passive income that’s just shy of £32,000. When following the 4% withdrawal rule, that means investors need to have an £800,000 nest egg. Of course, with inflation, investors may have to aim a little higher.
Assuming a portfolio can generate an 8% annualised return in line with the wider UK stock market, investing £750 each month will eventually surpass the £800k threshold within around 26 years, just in time for retirement. And by leveraging the tax relief advantages of a Self-Invested Personal Pension (SIPP), this timeline could be shortened even further.
Another way to accelerate the journey towards a comfortable retirement is through stock picking. Rather than relying on index funds, investors can opt to focus solely on the best and brightest of businesses, potentially unlocking superior returns in the process. Even if this extra effort only yields an extra 2% in annualised returns, that’s enough to cut years off the waiting time.
The power of stock-picking
Identifying market-beating stocks is far easier said than done. But when successful, the gains can be explosive. One recent example of this is Alpha Group International (LSE:ALPH).
The currency risk management and alternative banking business successfully carved out a unique niche within the wider corporate banking market. By focusing exclusively on small- and medium-sized businesses that traditional banks ignored, Alpha was able to expand without much competitive pressure.
Subsequently, since its IPO in 2017, the stock went on to deliver a staggering 1,570% return before even counting dividends. That’s the equivalent of a 42% annualised return – enough to transform £750 a month into £800k in less than nine years.
Even in 2025, Alpha continues to outperform despite sluggish activity within the private financial markets it serves and the continued headwinds of wider economic uncertainty. Sadly, its days as a market-beater seem to have come to an end. Not because the underlying business is struggling, but rather because it’s being acquired and taken private, ending its story as a public company.
As a shareholder, seeing Alpha ride off into the sunset is saddening. Mostly because I now have to search for another business of the same calibre as my profits. That’s not an easy task. But by honing in on the companies with a unique niche and wide competitive moat, investors can potentially stumble upon the next Alpha, and hopefully enjoy similar explosive gains to build a chunky pension pot.
